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From the following details obtained from the financial statements of Jeev Ltd. Calculate interest coverage ratio
Net Profit after tax 1, 20,000
12% Long-term Debt 20, 00,000
Tax Rate 40%

Answer
Interest space Coverage space Ratio space equals space fraction numerator Profit space before space Interest space and space Tax over denominator Interest space on space Long minus term space Debt end fraction
Net space Profit space after space Tax space equals 1 comma 20 comma 000
Tax space Rate colon space 40 percent sign
If Profit after tax is 60, Profit before Tax must be 100
And if profit after tax is 1,20,000; profit before tax would be
100 over 60 cross times 1 comma 20 comma 000 equals 2 comma 00 comma 000
12% Long-term Debt 20,00,000
Interest on Long-term debt 12% of 20,00,000 i.e. 2,40,000
Accordingly, Profit before Interest and Tax would be 2,00,000 plus Interest
rightwards double arrow left parenthesis 2 comma 00 comma 000 plus 2 comma 40 comma 000 right parenthesis equals 4 comma 40 comma 000
therefore space Interest space Coverage space Ratio space equals space fraction numerator 4 comma 40 comma 000 over denominator 2 comma 40 comma 000 end fraction equals 1.83 space times